Report: First-time Buyers Fade From Market

There’s more evidence today that cash buyers and investors are dominating the housing market.

A report out today from Capital Economics says that cash buyers and investors together have driven 70% of the increase in existing home sales seen since last July, while first-time buyers have been responsible for just 6%. Favorable valuations “mean there is plenty of scope for housing to perform well in the medium-term,” the report, “U.S. Housing Market Monthly,” says. “But over the next year, weak demand, high supply and many more forced sales of foreclosed properties will push prices lower.”

Indeed, the influence of cash buyers and investors is one signal that prices are falling. Cash buyers often buy at a discount, something sellers are willing to offer because they know the deal won’t be scuttled by picky lenders or appraisers. The fact that regular transactions have slowed may also indicate that more buyers are having trouble getting qualified for a loan.

“The point we’ve been stressing is that first-time buyers are really a small percentage of what is going on here,” said Paul Ashworth, chief U.S. economist for Capital Economics, a research firm with North American headquarters in Toronto. The report looks at buyers between July of last year and January, showing, in part, the drop-off after the first-time buyer’s tax credit expired.

Last month, the Journal reported on the boost that cash buyers are providing for troubled markets around the country. In the Miami-Fort Lauderdale area last year, cash buyers represented more than half of all transactions, according to an analysis from real estate portal Zillow.com. In the fourth quarter of 2006, they represented just 13% of deals.